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The BoI Turnaround - Perspectives, Insights and Lessons on Development

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Saturday, January 28, 2017 11.27PM / News & Investigations with Rasheed Olaoluwa

That the Bank of Industry (BoI) Nigeria has become a veritable vehicle of/for business and industrial development across the country is a fact acknowledged by all and this feat is traceable to the surgical overhaul of the bank under the Rasheed Olaoluwa led management from May 2014 to February 2016. The former CEO of the BOI agreed to share insights and perspectives on Corporate Transformation in Nigeria: My BoI Experience. In this engagement, Rasheed recounts how the bank, under his watch delivered on the natural intendment of the institution despite daunting and limiting institutional and environmental challenges.

Read below the narratives/excerpts:

Q: What were your first impressions and how did you go about the BoI assignment?

A: I arrived at the Bank of Industry (BoI) with 25 years of fast-paced experience gained from reputable institutions such as KPMG, GTBank, Ecobank, Universal Trust Bank (acquired by Union Bank), UBA Group and Heirs Holdings. I had been opportune  to run the largest strategic business group in the UBA successfully and led the regional expansion of UBA into 18 African countries. This allowed me to build and acquire a reputation for efficient execution, for getting things done and for being ethical. The then Minister of Industry, Trade & Trade, Dr. Olusegun Aganga, acknowledged this much during our pre-appointment meeting following necessary background checks.

The situation at BoI on May 19, 2014 (the day I assumed duties) increased the level of my anxiety. The financial statements and accounts for April 2014 were not available. Indeed, the accounts for March 2014 were still being finalized (two clear months behind schedule) which was equivalent to flying blind, going by private sector standards. For someone accustomed to having the numbers within days of a month-end at the UBA Group for over eight years; I knew I had to start with an accurate and up-to-date information to deliver an environment premised on sound decision-making.


I took my first meeting with the bank’s executive committee members and solicited their cooperation and support. It was imperative that we built an environment and focused on a message premised on team spirit/dynamics in facing the challenges of executing on the mandate.


I received a briefing from the Human Resources (HR) Department on the profiles of each executive committee member, following which I engaged in a series of one-on-one meetings with all the executive members. This was a highly revealing exercise as I could now decipher the key challenges that needed to be tackled based on my belief on the role of human resource. The fact that most of the executive committee members were found to be highly qualified and experienced provided increased my confidence level as I believe that the success of any leader is a function of the quality of the people around him. The management team at BOI only required purposeful leadership to galvanise and propel them to excellent performance levels; as prescribed in the strategic objectives we pursued.

Within days of assumption, we had a sketchy “current position assessment” which indicated that we had a fairly good management staff, weak governance structure coupled with a lack of a strategic direction, a lengthy lending process, an unwieldy and grossly inefficient process for delivering on mandates, lots of customer complaints especially by SMEs, and an institutional Non-Performing Loan (NPL) ratio which was very high at 18 per cent (the maximum ratio for development banks was set at 5 per cent by the Central Bank of Nigeria (CBN) and the bank’s liquidity position was so tight that some previously approved loans were being disbursed in tranches).


The starting point for us was to mobilise all the staff to unite behind a vision which was stretched and noble enough to get everyone motivated. We hired the firm of KPMG professional services to conduct a comprehensive diagnostic review following which a strategic retreat was organised. We wanted a simple, yet noble vision statement that captured the essence of the developmental role of BOI.


Following lengthy debates among the retreat participants, we agreed on the vision: "To be the most impactful development bank in Africa". At the end of the retreat, a robust 5-year Strategic Plan (2015-2019) was developed. We planned our strategic initiatives along two broad objectives:

(i)                to make significant developmental Impact on Nigeria’s real sectors (by funding industrial projects and SMEs), and

(ii)             to adopt global best practices in risk management, operations, human resources and finance and among others.


We defined development impact in terms of how many projects in our targeted industrial sectors we are able to finance; the level of domestic value addition by funded projects; how many Nigerians are employed by those projects; the ability of the projects to source their raw materials locally, etc.


By adopting global Best Practices, we wanted BoI to be run effectively and efficiently like the leading Development Finance Institutions (DFIs) in the world. We benchmarked BoI against the leading national DFIs in emerging markets such as South Africa, Brazil, India, Malaysia and Turkey. We also analysed the two leading African regional DFIs – Africa Development Bank (AfDB) and Africa Export-Import (AFREXIM) Bank. In this regard, we set specific goals that were benchmarked against emerging market best practices covering operational efficiency, service delivery, risk asset quality and operating costs among others.

We agreed on specific milestones and set timelines for a wide range of strategic actions which we designed to achieve the developmental impact and best practice objectives from 2015 to 2019. We spent considerable time debating and eventually agreeing on a new corporate culture. We developed a new set of core values with the acronym SPPIRIT – meaning: Service; Professionalism; Passion; Integrity; Resourcefulness, Innovation and Team work. (By Resourcefulness, we meant the ability to do more with less, not just throwing money at problems, but being creative with problem-solving).

Q: How did you proceed from strategy to implementation?

A:
We ended the retreat on a high, with a joint commitment to be guided by the core values of SPPIRIT. Fortunately, a new Board of Directors (BoDs), under the chairmanship of Alhaji Abdulsamad Rabiu, CON (the Chairman of BUA Group), had been inaugurated earlier in August 2014. The board approved the strategic plan and a governance charter which guided both management and board activities. All important decisions were taken at the Executive Management Committee (EMC) while the board approved the major ones, as provided in the charter.


The Board of Directors (with institutional representatives from Federal Ministry of Finance, Federal Ministry of Industry, Trade & Investment, the CBN and the Manufacturers Association of Nigeria) was very supportive. The BoDs’ Chairman (Rabiu) was exceptional in his leadership of the board.


With the strategy and governance framework in place, we restructured the bank along the key industrial sectors (Agro Processing, Petrochemicals, Solid Minerals and Light Manufacturing) identified in the Nigeria Industrial Revolution Plan  (NIRP), which had been launched in early 2014 by the then President Goodluck Jonathan. The NIRP had been developed in response to a report released by the United Nations (UN) Economic Commission for Africa (ECA) titled: “Making the Most of Africa’s Commodities” released in 2013 and the UN Growth Commission Report 2008, to which the former Finance Minister, Dr. Ngozi Okonjo-Iweala was a signatory.


Although we had executives with adequate experience in agro processing, energy and manufacturing, we did not have the required capacity to drive our activities in the solid mineral sector. Therefore, we organised a focused training session on mining for all management staff and followed this up with an international solid minerals seminar with speakers from Sierra Leone (the CEO of Sierra Rutile, which is listed on the London Stock Exchange) and South Africa (the Director of Mining Division at the Industrial Development Corporation). We sponsored our Group Head, Solid Minerals, to attend the Mining Indaba in South Africa in 2015. The Mining Indaba is the biggest annual mining event in Africa with attendance from over 100 countries. This exposure was very instrumental to our subsequent forays in the mining sector.


From experience, whenever wholesale and retail businesses are combined in a department, the retail business tends to suffer neglect. Large industrial projects and SMEs were being served in a single directorate, and as result, the SMEs were suffering. This was the rationale for creating a separate SME directorate in late 2014, to cater for the growing needs of SMEs, which constitute an important segment of the economy.


Waheed Olagunju, who had been Executive Director (ED), Business Development, was reassigned as ED-SMEs, a role which, I believe, prepared him very well for his current role as Acting Managing Director (MD), which he has so far discharged effectively, in my opinion.

A very high NPL ratio is always symptomatic of a weak risk management system. Being a development bank is not a license to create bad loans. In fact, the Brazilian Development Bank (BDB) had an NPL ratio of 2.2 per cent in 2013, and this became our target. We developed a robust enterprise-wide risk management system. We set up a central credit department to review and filter all the loan proposals received from the project officers. This was a master stroke that brought instant discipline to the credit process.


Loan monitoring and loan recovery departments were established to provide oversight over the bank’s loan portfolio, provide remedial services and actively recover any bad loans. We conducted rigorous loan portfolio reviews on a quarterly basis. These tireless efforts brought down the NPL ratio from 18 per cent in May 2014 to four per cent in February, last year.


To sensitize the public on the issue of bad loans, we blacklisted 23 companies who had perpetrated credit fraud (willful default and cloned title documents among others) in the bank. The criminal cases were reported to the Economic and Financial Crimes Commission (EFCC). On the flip side, we also recognised 10 customers who had consistently fully repaid their loans from BoI and inducted them into the BoI’s Hall of Fame.


Q: How did you tackle the issue of operational efficiency?

A: The bank’s processes were partly manual, partly computerised in 2014. There were many transaction processing errors and reconciliation items running to billions of naira took several weeks to reconcile and resolve. This must have been responsible for the long delay in getting the financial statements ready in 2014 and also for frustrating delays in service delivery. Clearly, the situation was a far cry from what was best practice.


Therefore, we embarked on a comprehensive re-engineering and automation of all the credit and operational processes. We implemented an operational excellence project (code-named “Project Phoenix”). The banking application was changed, loan processing was automated, online loan portal was launched, paperless office workflow and document management systems were initiated, the bank’s website was revamped and renamed (from
www.boinigeria.com to www.boi.ng), the ambience was improved and customer service initiatives were implemented. The bank’s operations were integrated with the Nigeria Interbank Settlement System (NIBSS) for instant inward/outward fund transfers. We installed a Customer Service Hotline: 0700CALLBOI.

The result was a dramatic improvement in service delivery; turnaround times (from application to disbursement) for loans was reduced from nearly one year to less than 90 days; reconciliation items reduced to almost zero, the bank’s operations became generally more efficient.


The bank’s operations division was also responsible for finance up to late 2014. This was clearly an outdated model. A new finance group was created therefrom, and we hired a Chief Finance Officer (CFO) to man this function. A new Management Information System (MIS) was also implemented which provided information on the bank’s activities at the touch of a button. Monthly management accounts are now available within maximum of three days of month end.


Functional and generic training programmes were for all junior, senior and management staff in accordance to their level and job functions. And to ensure every staff is held accountable for results, we implemented an electronic Performance Management System (e-PMS), under which every staff in the bank agreed to three-five Key Performance Indicators (KPIs), against which their performance was appraised half-yearly. The outcomes of these performance appraisals were discussed openly at EMC meetings to ensure transparency, and decisions were taken on rewards and sanctions. Both functional and generic training programs were organised for all junior and senior staff throughout the period to develop their capacity.


Q: How did you crack the challenge of lending to SMEs? 

A: In early 2015, we realised the necessity to change our approach to dealing with SMEs if we were to gain traction with lending to them.

Firstly, it was clear that most of the SMEs do not have the capacity to prepare bankable business plans and loan applications. Consequently, we accredited a total of 200 Business Development Service Providers (BDSPs) spread across Nigeria to assist SMEs with business plans and loan applications, at pre-agreed low fees (e.g. the BDSPs agreed to charge only N10, 000 for packaging loan applications below N10 million). It was a successful initiative, which increased the quality of SME loan applications and the loan approval rate.

Secondly, we launched an SME Accounting App to assist SMEs with basic record-keeping.

Thirdly, we realised that SMEs are not all the same (one size does not fit all). This led us to the identification of about 40 different SME clusters nationwide, and the development of specific products for each cluster. For example, we launched the

(i)                N5 billion Cottage Agro Processing (CAP) Fund,

(ii)             N1 billion NollyFund for Nollywood,

(iii)           N1 billion Fashion Fund,

(iv)            N1 billion BoI/NYSC Fund and

(v)              N10 billion Youth Entrepreneurship Support (YES) Fund.

Thousands of SMEs benefited from these funds. Movies such as “The CEO” and “Three Wise Men” among others, benefited from the fund as well as some of the best movie production studios in Nigeria today.

Q: Can you share insight(s) on how BOI got involved in funding Solar Energy companies?

A: We read the amazing story of M-Kopa Solar in 2014. The company was started by Safaricom, the leading Telco in Kenya, to replicate their GSM success story in the home solar space. The company was providing home solar systems to over 200, 000 rural households in East Africa on a pay-as-you-go basis. The public will recall that pay-as-you-go was the magic wand for the rapid uptake of GSM subscription across Africa over the last 15 years. The Pay-as-you-go (PAYG) business model solved the credit risk problem for the Telcos and the cash flow problem for the subscriber; hence the penetration of the mass market – shop owners, artisans, market women, traders and students.


M-Kopa provided the basic energy requirements of a rural dweller (three or four LED light bulbs, phone charging, radio, electric fan) and allows the user to pay in the same way he/she buys phone recharge credit! Moreover, the cost of solar was reducing at the rate of eight per annum globally. Thus, we wanted BoI to facilitate the replication of this business model in Nigeria, by working with Nigerian solar energy companies. We were constantly driven by the need to make a developmental impact on Nigerians.


Fortunately, BoI had established a Renewable Energy Unit in partnership with United Nations Development Programme (UNDP) Nigeria to explore various solutions such as mini hydro, biofuel, wind, etc. Funds had been expended on a number of capacity building programmes. Although technically sound, most of the renewable energy solutions, then under consideration, were considered commercially unviable. The only viable low-cost option for rural electrification was Solar. We decided to refocus the Renewable Energy Programme on solar, and renamed it the BOI/UNDP Solar Energy Programme.  

We presented our solar plans to both UNDP Nigeria and the then Minister of Power, and having obtained their go-ahead, we published a Request for Proposal (RFP) in search of Nigerian companies involved in solar installations. We received only about 10 proposals from which our technical team shortlisted two companies: Arnergy Limited and Green Village Electricity (GVE) Limited. They were the only ones whose proposals indicated some understanding of the use of Pay-As-You-Go technology for home solar energy delivery. I was impressed by the youthfulness of the two CEOs, who were in their late twenties or early thirties.


We met with both companies and requested them to further refine their proposals, focusing specifically on the use of Pay-As-You-Go technology, which they did, and impressively too. There was a tie. We decided to work with both companies. We worked with six state governments to select rural location, one in each state, that are completely outside the national electricity grid; in other words, had never experienced electricity! Arnergy Limited handled the projects in Onibambu/Idi-Ita in Ife North Local Government Area of Osun State, Obanyator, Ikpoba-Otha Local Government Area of Edo State and Carwa/Cakun in Makarfi Local Government Area of Kaduna State, while GVE Limited handled the projects in Bisanti, in Katcha Local Government Area of Niger State, Kolwa, in Kaltungo Local Government Area of Gombe State and Onono, in Anambra West Local Government Area of Anambra State.


You would have noticed that we covered all the six (6) geopolitical zones in the country. This was to serve as a model to be replicated by individuals, companies, local and state governments. When the projects were completed, the villagers rolled out the drums, sang joyful songs and danced their best steps. They are Nigerians, they vote in local and general elections. They do not deserve to have been kept in darkness for so long!


We were often asked by skeptics about the ability of the villagers to pay for solar energy, and our response was always that they miss the point about the connected nature of the Nigerian society. And yes, indeed, they are paying. The economies of those rural villages had thus been transformed; their children can now study with less stress in the evening and there was increased purchasing power in their communities.


Both Arnergy and GVE are embarking on similar projects in many other locations.

The six villages under our pilot continue to enjoy electricity today, but there are still thousands of towns and villages that are several kilometers away from the grid. And given the current challenges with the DISCOs and GENCOs, they are likely to remain so for a long time. Nigeria is long overdue for a state of emergency in the electricity sector, not based on the failed national electricity grid, but on distributed renewable energy sources. Today, the renewable energy generated in Germany is sufficient to power the whole of Africa.


Q: How will you summarize BOI's impact during that period?

A: We gained a lot of traction in the area of impact, empowerment by way of supporting hundreds of industrial projects (in Agro Processing, Petrochemicals, Energy, Mining and Manufacturing) and thousands of SMEs. Total loans to industrial projects as well as SMEs in the various clusters exceeded N82 billion in 2015. And the loan beneficiaries employed hundreds of thousands of Nigerians. More importantly, the loans are performing.

Q: What are your thoughts on manufacturing in Nigeria

A: BOI's primary focus is the manufacturing sector, made up of industrial companies engaged in value addition in Nigeria's real sectors. We visited and supported many factories across the country. Our loan portfolio to this sector was in excess of N600 billion by December 2015. However, the point must be made that manufacturers in Nigeria struggle to overcome the challenge of poor electricity supply, with high energy costs that make them uncompetitive. And except for the newer ones, most factories run on outdated / inefficient technologies, thus compounding their problems. 

Over the last decades, manufacturing technology has transformed globally from analogue/mechanical, to electro-mechanical, to digital. The world now talks about smart and robotic manufacturing, which is no longer about the hardware or machines, but about software. This is one of the major factors responsible for Nigeria’s low volume of manufactured exports. Our manufacturers must embrace smart manufacturing to become competitive in the market. The government should also focus on upgrading the infrastructures in the existing export processing zones and even establish new industrial parks.

Q: You doubled BOI's branch network; what was the rationale?  

A: In May 2014, BoI had only seven offices nationwide. Project officers travelled long distances over two-three days for project inspection, incurring heavy costs (travel, accommodation, incidentals) in the process. Customers also had great difficulties reaching the few offices. By February last year, we had increased the number of offices to 16. This geographical expansion was achieved with relatively low-cost offices of four-five project officers each. The expanded reach made it easier to reach the bank's customers and for the customers to reach the bank


The management and staff of BoI worked long hours. There were two quarterly review sessions, one for performance review and the other for loan portfolio review. We had lengthy EMC meetings that ended really very late, sometimes at midnight. We didn’t like the long meetings, we really tried to shorten the sessions, there were just so many areas we needed to cover.


Q: We observed that the pace of execution was rapid. How was that achieved? 

A: The pace of execution was fast, and there was no room for unplanned slack and institutional inefficiency. We covered a lot of grounds – corporate strategy, unit strategies, corporate governance, organisation structure, people issues, corporate culture, capacity building, risk management, information technology, process automation, operational excellence, service delivery, loan recovery, branch expansion, performance management, product development, etc. It was hard work; it was smart work, and we achieved measurable results. Indeed, the pace of change matched the urgency of the problem/impact diagnosis.


Every staff was held accountable for results through an electronic performance management system under which 3-5 KPIs were agreed with each staff. Rewards and sanctions were based on the outcome of staff appraisals on these KPIs. The process was transparent and fair, and got everyone driven

Q: Share with us the significance of improvements made in the bank's performance 

A: The bank’s operating profit increased from N2 billion in 2013 to N6 billion in 2014 and increased further to N12 billion in 2015. In addition, there was an exceptional income of N37 billion earned from the sale of equity investments in 2015.


BoI was one of a handful of Federal Government agencies to produce audited financial statements for the years ended 31st December, 2014 and 2015 within the first quarter of the following year. It took meticulous planning and execution by the finance executives at the bank. And thanks to the bank’s external auditors, Akintola Williams Deloitte, who responded very well to our tight deadlines.

Q: You took the bank through international ratings; how did that go?

A: In 2015, we subjected the bank to an international quality certification, and having passed the assessment, BoI received its first ISO 9001:2008 Quality Management System certification in June 2005. We also received a number of maiden local and international credit ratings from Agusto &Co (A+ rating), Fitch Ratings (National: AA+ rating; International: B- rating), and Moody’s (Ba3 rating). By the end of 2015, the Association of African Development Finance Institutions (AADFI) had placed BoI in the Top 10 Category (AAA rating) in its annual Peering Rating System. These ratings attested to the progress we had made in adopting global best practices.


We took the bank through these certification and rating processes in order to position it for a potential medium-long-term bond issuance (both national and international) in late 2016/early 2017.


This was seen as a major missing link between BoI and the leading emerging market development banks, all of which raised long term funds through bond issuance to reduce dependence on government funding. This will most likely be an area of challenge for the bank in the years ahead.

Q: What are your thoughts on the proposed national development bank? 

A: I recall meeting with the former Finance Minister, Dr. Mrs. Ngozi Okonjo-Iweala, in 2014, to seek clarification with regards to the planned privatization of BOI. She confirmed to me that the former President Goodluck Jonathan had approved the privatization of BOI since November 2013 and the establishment of a new National Development Bank, to which the World Bank, AfDB, FfW DEG(Germany) and AFD(France) had committed a total of $1.3 billion. The Bureau of Public Entreprises commenced the privatization processs in 2015, and stopped at the stage of appointment of advisers, just before the last general elections. 

It is my opinion that a privatized BOI is unlikely to continue with its current lending policy of granting long term loans at low interest rates. It will be recalled that the former Federal Savings Bank lost its cutting edge as a savings institution after it was privatized in the early 1990s. It is also imperative for the new administration to make a clear pronouncement on the future of BOI in view of the imminent take off of the National Development Bank.

Q: Recall your last day at the bank, how did it go and what were the lessons learnt?

A: I recall saying to my former colleagues, who were participants at the December 2014 strategy retreat that, even if my tenure in office was limited to just one year, I was determined to make sure that I make such an impact on the bank, that it will be long-lasting. That statement proved somewhat prophetic.

My tenure ended after 21 months in charge. But the job was done already. The template for sustainable growth and best practice had been established.

We succeeded in transforming BoI, by working together under the core values of SPPIRIT! The bank’s operations is now automated, efficient, impactful and profitable. I can only expect that it will grow further therefrom. The basis for institutional integrity, value and impact has been entrenched in the system.

Thus, and just like I did on the first day I assumed office, I met with the executive management committee on my last day at the bank. I thanked them for their support and wished them well as they continue the pursuit of our agreed vision. Having completed necessary handovers and sign-offs, I was left with a feeling of satisfaction for the privilege to have had the opportunity to raise and set standards of excellence and of productivity. I didn’t just pass through BoI, I have no doubt that BoI passed through me in a significant way. Viva Nigeria.


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